Reverse charge mechanism (RCM) in INDIA GST Localization in Microsoft Dynamics 365 Finance and Operations

Dear Microsoft BizApps Community,

Welcome to my blog on INDIA GST Scenario series, this is the first article on INDIA GST localization, I hope we shall cover up various scenarios under GST INDIA.

In this article we shall talk about how we can configure the Reverse charge mechanism (RCM) Scenario and how the transactions will look like.

Before we deep dive to the scenario, lets go through the reverse charge mechanism documentation for INDIA GST https://cleartax.in/s/reverse-charge-gst

Accounting entry for Reverse charge mechanism (RCM)

Once you have gone through the reverse charge doc from the above link, let see how the accounting entry will look like~

10000 as goods purchased and applicable for RCM IGST 18%= 1800 INR

Expense account Dr 10000 INR

IGST 1800 GST Input DR

IGST 1800 GST Output CR

Vendor balance 10000 CR

In normal GST or VAT scenario in purchase scenario, only input GST/VAT comes, however here Output also coming as per the RCM requirement.

Tax Configuration Setup for Reverse charge mechanism (RCM)

Navigate to Tax Setup-> Setup

Navigate to GST component SGST, CGST, IGST individually, we shall see the setup for IGST in this case, same should be configured for SGST and CGST as well.

Add HSN/SAC code into the “Rate” section first

At first add the HSN/SAC codes to the “Rates” section with tax rate type

=

Now add the same HSN/SAC code to the “Reverse Charge Percentage” section with HSN Code/SAC code along with Tax rate type and Percentage as 100%.

Note- the same setup must be configured for SGST and CGST component for respective intra state scenario.

Once the above setup is done, select the IGST/SGST/CGST section and add the ledger accounts to the ‘Tax Payable’ and ‘Interim recoverable’ field.

Tax Payable will be used as Output GST and Interim recoverable will be used as Input GST in the voucher transaction.

The Configurations are done, now we shall see the transactions by using the same HSN in one of the Vendor transactions

Lets create one invoice journal and use the same HSN code we have created along with Tax Rate Type, see below in Tax information page

Before posting the journal, we can check the GST amount calculated and whether this is “Reverse charge” or not, we can also check.

Navigate to “Tax Document” and click on that

We can see the GST calculation and IGST component from the Tax document page.

To make sure if this is selected as “Reverse Charge” or not, we can check the “Details” section in the “Tax Document” form.

Now let see after the posting of the invoice, see below

10000 as goods purchased and applicable for RCM IGST 18%= 1800 INR

Expense account Dr 10000 INR

IGST 1800 GST Input DR

IGST 1800 GST Output CR

Vendor balance 10000 CR

Bingo!!! The RCM is done

That’s it for this article, thanks for going through

Happy days